Asian markets fall, Europe gains in early trading

Specialists Gennaro Saporito, left, and Peter Giacchion confer on the floor of the New York Stock Exchange Wednesday, May 19, 2010. (AP Photo/Richard Drew)

/ AP

Specialists Gennaro Saporito, left, and Peter Giacchion confer on the floor of the New York Stock Exchange Wednesday, May 19, 2010. (AP Photo/Richard Drew)

Specialists Gennaro Saporito, left, and Peter Giacchion confer on the floor of the New York Stock Exchange Wednesday, May 19, 2010. (AP Photo/Richard Drew) (/ AP)

ALEX KENNEDY, Associated Press Writer

Asian stock markets were lower Thursday, but European shares rebounded as investors mulled the impact of financial upheaval in Europe amid concern the continent may be unable to quickly resolve its debt crisis.

In Asia, Japan's benchmark Nikkei 225 stock average dropped 1.5 percent to 10,030.31 after the government said the economy grew 4.9 percent in the first quarter, less than analysts expected. Australia's main index fell 1.6 percent to 4316.50 while shares in Shanghai, Hong Kong and Indonesia also fell.

Some analysts are still sanguine about Asia's ability to absorb a slowdown in Europe.

The negative impact on real economy due to China's trade exposure to Europe "will likely be quite manageable," Morgan Stanley said in a report. Weakness in Europe "helps avoid a worst case scenario in China: Overheating."

Nevertheless, investor fears that contagion from the Europe crisis could spread continue to weigh on stock markets.

"The impact on market confidence and the subsequent reactions on various asset classes matters more than the real economy in the short term," Singapore's DBS bank said in a report.

South Korea's Kospi index fell 1.8 percent to 1,600.18 after the government announced that an investigation showed overwhelmingly that North Korea fired a torpedo that sank the Cheonan warship and killed 46 sailors. North Korea has denied involvement in the sinking and vowed Thursday to wage "all-out war" if punished for the sinking of the ship.

Thailand's stock market was closed Thursday after a confrontation between the army and anti-government protesters sparked rioting and arson in Bangkok. The exchange was one of the building's torched by rioters but damage was largely limited to its ground floor.

Major European markets were also down sharply Wednesday, falling nearly 3 percent.

The latest downturn was triggered by Germany's unexpected announcement Tuesday that it had banned naked short selling, where traders bet against investments they don't hold. The sudden move was seen as another example of the disarray in Europe's financial system.

European leaders agreed last week to a nearly $1 trillion bailout program to help countries with debt problems, like Greece. Traders are also concerned that the strict financial measures tied to the bailout could curtail a rebound in stock prices.

In currencies, dollar fell to 91.46 yen from 91.78 yen earlier in New York while the euro fell against the dollar to $1.2358 from $1.2426.

Benchmark crude for June delivery was up 83 cents to $70.70 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 46 cents to settle at $69.87 on Wednesday after dropping earlier in the session to $67.90, the lowest since September.